Union Pacific CEO sees slow U.S. growth in 2012

NathalieTadena

Union Pacific Corp.
UNP, +1.08%
acting Chief Executive Jack Koraleski said he expects slow growth for the U.S. economy this year, though concerns about high levels of unemployment continue to weigh on consumer sentiment.

Union Pacific, the largest public railroad in the U.S. by market capitalization, and other top railroads and freight haulers are often considered economic bellwethers because of the breadth of goods they ship.

Looking ahead, the company expects positive volume growth by the end of the year, even as the industry continues to face challenges from softer coal demand. Coal volumes fell 17% in the second quarter, primarily due to a mild winter and an increase in stockpiles. However, strength from energy-related transports of crude oil, frac sand and pipe, as well as automotive and industrial chemicals, have helped the company mitigate coal weakness. Overall volume was flat for the latest quarter and was up about 4%, excluding coal.

Union Pacific has been offsetting its coal declines with a booming business in hauling materials to and from new shale-oil drilling sites. Union Pacific transports steel, sand and pipe to drilling sites where oil and natural gas are extracted from shale rock, and then hauls out resulting crude oil. Mr. Koraleski noted the company's southern region, which has an "enormous appetite for crude oil," has seen the strongest growth among its regional markets this year.

"If the United States captures the shale opportunity as a competitive advantage, that should be a boom for U.S. manufacturing, which is another source of business for us," Mr. Koraleski said.

Mr. Koraleski, who was named acting president and CEO in March when James Young decided to take a medical leave of absence, said the unemployment rate is the biggest factor affecting consumer sentiment and spending. Consumer sentiment is not negative, Mr. Koraleski said, and said certain customers, especially those in the shale oil development business, are very bullish.

"Once people are back to work, they'll feel more like investing in cars and houses and that's really what drives our business," Mr. Koraleski said.

Mr. Koraleski noted the company's lumber business saw a "nice uptick" in the latest quarter as the segment starts to pick up for the first time since the economic downturn. He also sees upside opportunity in the automotive segment as sales of new vehicles continue to pick up this year.

Shares of the company, which hit an all-time high earlier Monday, were off by 87 cents to $118.45 in recent trading. The stock is up 12% since the start of the year.

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